<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[x] Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended
March 31, 1996
or
[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
__________________
Commission File
No. 0-16431
__________________
TCF FINANCIAL CORPORATION
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 41-1591444
- ------------------------------ ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
801 Marquette Avenue, Suite 302, Minneapolis, Minnesota 55402
--------------------------------------------------------------
(Address and Zip Code of principal executive offices)
Registrant's telephone number, including area code: (612) 661-6500
--------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Outstanding at
Class April 30, 1996
- ---------------------------- -----------------
Common Stock, $.01 par value 35,393,765 shares
<PAGE>
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
INDEX
<TABLE>
Part I. Financial Information Pages
-----
<S> <C>
Item 1. Financial Statements
Consolidated Statements of Financial Condition
at March 31, 1996 and December 31, 1995. . . . . . 3
Consolidated Statements of Operations for the
Three Months Ended March 31, 1996 and 1995 . . . . 4
Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1996 and 1995 . . . . 5
Consolidated Statements of Stockholders' Equity for
the Year Ended December 31, 1995 and for the
Three Months Ended March 31, 1996. . . . . . . . . 6
Notes to Consolidated Financial Statements . . . . . 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations for the Three
Months Ended March 31, 1996 and 1995 . . . . . 8-26
Supplementary Information. . . . . . . . . . . . . . 27-28
Part II. Other Information
Items 1-6. . . . . . . . . . . . . . . . . . . . . . . . 29
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Index to Exhibits. . . . . . . . . . . . . . . . . . . . . . . . . . . 32
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Financial Condition
(Dollars in thousands, except per-share data)
(Unaudited)
<TABLE>
At At
March 31, December 31,
ASSETS 1996 1995
---------- ------------
<S> <C> <C>
Cash and due from banks $ 218,184 $ 233,619
Interest-bearing deposits with banks 451 533
U.S. Government and other marketable securities
held to maturity (fair value of $3,789 and $3,716) 3,789 3,716
Federal Home Loan Bank stock, at cost 54,962 60,096
Securities available for sale (amortized cost of
$1,115,629 and $1,182,240) 1,117,439 1,201,490
Loans held for sale 249,498 242,413
Loans:
Residential real estate 2,495,466 2,618,725
Commercial real estate 951,922 970,763
Commercial business 167,388 167,663
Consumer 1,641,113 1,593,439
Unearned discounts and deferred fees (80,966) (73,489)
---------- ----------
Total loans 5,174,923 5,277,101
Allowance for loan losses (66,779) (65,695)
---------- ----------
Net loans 5,108,144 5,211,406
Premises and equipment 120,619 120,763
Real estate:
Total real estate 22,165 24,466
Allowance for real estate losses (1,331) (1,526)
---------- ----------
Net real estate 20,834 22,940
Accrued interest receivable 45,585 49,120
Due from brokers - 6,767
Goodwill 11,227 11,503
Deposit base intangibles 12,399 12,918
Mortgage servicing rights 16,643 16,286
Other assets 59,508 46,341
---------- ----------
$7,039,282 $7,239,911
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Checking $1,122,726 $1,103,272
Passbook and statement 868,321 841,115
Money market 632,732 616,667
Certificates 2,526,244 2,630,498
---------- ----------
Total deposits 5,150,023 5,191,552
---------- ----------
Securities sold under repurchase agreements 358,258 438,426
Federal Home Loan Bank advances 831,585 893,587
Subordinated debt 13,430 13,520
Collateralized obligations 41,170 41,391
Other borrowings 24,444 54,520
---------- ----------
Total borrowings 1,268,887 1,441,444
ACCRUED INTEREST PAYABLE 15,035 14,905
ACCRUED EXPENSES AND OTHER LIABILITIES 64,318 64,335
---------- ----------
Total liabilities 6,498,263 6,712,236
---------- ----------
Stockholders' equity:
Preferred stock, par value $.01 per share, 30,000,000
shares authorized; none issued and outstanding - -
Common stock, par value $.01 per share, 70,000,000 shares
authorized; 35,874,837 and 35,604,531 shares issued 359 356
Additional paid-in capital 247,968 243,122
Unamortized deferred compensation (11,204) (11,195)
Retained earnings, subject to certain restrictions 304,512 283,821
Loan to Executive Deferred Compensation Plan (116) (131)
Unrealized gain on securities available for sale, net 901 11,702
Treasury stock, at cost, 40,000 shares in 1996 (1,401) -
---------- ----------
Total stockholders' equity 541,019 527,675
---------- ----------
$7,039,282 $7,239,911
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
Annual financial statements are subject to audit.
3
<PAGE>
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
(In thousands, except per-share data)
(Unaudited)
<TABLE>
Three Months Ended
March 31,
-----------------------
1996 1995
-------- --------
<S> <C> <C>
Interest income:
Interest on loans $122,850 $115,467
Interest on loans held for sale 4,574 3,966
Interest on securities available for sale 20,351 1,612
Interest on investments 1,118 1,900
Interest on mortgage-backed securities held to maturity - 25,846
-------- --------
Total interest income 148,893 148,791
-------- --------
Interest expense:
Interest on deposits 44,696 48,305
Interest on borrowings 19,743 24,838
-------- --------
Total interest expense 64,439 73,143
-------- --------
Net interest income 84,454 75,648
Provision for credit losses 2,802 6,688
-------- --------
Net interest income after provision for credit losses 81,652 68,960
-------- --------
Non-interest income:
Fee and service charge revenues 22,600 20,753
Data processing revenue 2,512 2,424
Commissions on sales of annuities 2,169 2,366
Title insurance revenues 3,587 2,273
Gain on sale of loans held for sale 1,483 576
Loss on sale of mortgage-backed securities - (21,037)
Gain (loss) on sale of securities available for sale 85 (250)
Gain on sale of loan servicing - 523
Gain on sale of branches 1,245 42
Other 2,148 1,208
-------- --------
Total non-interest income 35,829 8,878
-------- --------
Non-interest expense:
Compensation and employee benefits 36,434 35,653
Occupancy and equipment 12,837 12,495
Advertising and promotions 4,732 4,452
Federal deposit insurance premiums and assessments 3,161 3,472
Amortization of goodwill and other intangibles 795 790
Provision for real estate losses 448 163
Merger-related expenses - 21,733
Cancellation cost on early termination of interest-rate
exchange contracts - 4,423
Other 17,399 13,979
-------- --------
Total non-interest expense 75,806 97,160
-------- --------
Income (loss) before income tax expense (benefit)
and extraordinary item 41,675 (19,322)
INCOME TAX EXPENSE (BENEFIT) 15,388 (7,683)
-------- --------
Income (loss) before extraordinary item 26,287 (11,639)
Extraordinary item:
Penalties on early repayment of FHLB advances, net of
tax benefit of $578 - (963)
-------- --------
Net income (loss) 26,287 (12,602)
Dividends on preferred stock - 678
-------- --------
Net income (loss) available to common shareholders $ 26,287 $(13,280)
-------- --------
-------- --------
Per common share:
Income (loss) before extraordinary item $ .73 $ (.36)
Extraordinary item - (.03)
-------- --------
Net income (loss) $ .73 $ (.39)
-------- --------
-------- --------
Dividends declared $ .15625 $ .125
-------- --------
-------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
Annual financial statements are subject to audit.
4
<PAGE>
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
<TABLE>
Three Months Ended
March 31,
--------------------------
1996 1995
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 26,287 $ (12,602)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 4,664 3,309
Amortization of goodwill and other intangibles 795 790
Amortization of fees, discounts and premiums (45) (365)
Proceeds from sales of loans held for sale 241,664 74,051
Principal collected on loans held for sale 2,908 2,778
Originations and purchases of loans held for sale (225,894) (82,728)
Net increase in other assets and liabilities,
and accrued interest (5,268) (24,795)
Provisions for credit and real estate losses 3,250 6,851
(Gain) loss on sale of securities available for sale (85) 250
Loss on sale of mortgage-backed securities - 21,037
Gain on sale of branches (1,245) (42)
Gain on sale of loan servicing - (523)
Penalties on early repayment of borrowings - 1,541
Cancellation cost on early termination of interest-rate
exchange contracts - 4,423
Write-off of equipment - 13,435
Other, net (841) 890
----------- -----------
Total adjustments 19,903 20,902
----------- -----------
Net cash provided by operating activities 46,190 8,300
----------- -----------
Cash flows from investing activities:
Proceeds from sales of mortgage-backed securities - 211,117
Principal collected on mortgage-backed securities - 38,926
Principal collected on loans 475,932 254,121
Loan originations (403,645) (378,403)
Net decrease in interest-bearing deposits with banks 82 188,361
Proceeds from sales of securities available for sale 16,630 44,462
Proceeds from maturities of and principal collected on
securities available for sale 49,614 68,612
Proceeds from redemption of FHLB stock 6,902 8,838
Net increase in short-term federal funds sold - (3,100)
Proceeds from sales of real estate 8,392 2,423
Payments for acquisition and improvement of real estate (620) (1,027)
Proceeds from sales of loan servicing - 631
Purchases of premises and equipment (3,847) (5,436)
Sales of deposits, net of cash paid (24,198) (9,160)
Other, net 1,011 320
----------- -----------
Net cash provided by investing activities 126,253 420,685
----------- -----------
Cash flows from financing activities:
Net decrease in deposits (16,323) (19,097)
Proceeds from securities sold under repurchase agreements
and federal funds purchased 3,585,402 2,390,058
Payments on securities sold under repurchase agreements
and federal funds purchased (3,670,570) (2,354,028)
Proceeds from FHLB advances 307,517 699,890
Payments on FHLB advances (369,519) (1,176,910)
Payments for termination of interest-rate exchange contracts - (4,581)
Proceeds from other borrowings 85,262 -
Payments on collateralized
obligations and other borrowings (110,608) (278)
Proceeds from exercise of stock warrants and stock options 1,176 10,558
Repurchases of common stock (1,401) -
Other, net 1,186 3,325
----------- -----------
Net cash used by financing activities (187,878) (451,063)
----------- -----------
Net decrease in cash and due from banks (15,435) (22,078)
Cash and due from banks at beginning of period 233,619 224,266
----------- -----------
Cash and due from banks at end of period $ 218,184 $ 202,188
----------- -----------
----------- -----------
Supplemental disclosures of cash flow information:
Cash paid for:
Interest on deposits and borrowings $ 64,079 $ 78,231
----------- -----------
----------- -----------
Income taxes $ 19,461 $ 2,524
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
Annual financial statements are subject to audit.
5
<PAGE>
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
(Dollars in thousands)
(Unaudited)
<TABLE>
Loan to Unrealized
Executive Gain
Number Unamor- Deferred (Loss) on
of tized Compen- Securities
Common Pre- Additional Deferred sation Available
Shares ferred Common Paid-in Compen- Retained Plan and for Sale, Treasury
Issued Stock Stock Capital sation Earnings ESOP debt Net Stock Total
---------- ------ ------ ---------- -------- -------- --------- ---------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 34,172,346 $ 27 $342 $251,174 $ (6,986) $244,779 $(1,695) $ (1,160) $(11,012) $475,469
Net income - - - - - 60,688 - - - 60,688
Dividends on preferred stock - - - - - (678) - - - (678)
Dividends on common stock - - - - - (20,968) - - - (20,968)
Purchase of 32,400 shares to
be held in treasury - - - - - - - - (824) (824)
Issuance of 308,400 shares
of restricted stock, of
which 304,400 shares were
from treasury 4,000 - - 5,166 (10,628) - - - 5,462 -
Grant of 45,000 shares of
restricted stock to
outside directors - - - 369 (1,431) - - - - (1,062)
Issuance of 373,760 shares
from treasury to effect
merger with Great Lakes (373,760) - (4) (6,370) - - - - 6,374 -
Issuance of shares to
Dividend Reinvestment Plan 600 - - 11 - - - - - 11
Redemption of preferred stock - (27) - (27,073) - - - - - (27,100)
Repurchase and cancellation
of shares (2,676) - - (52) - - - - - (52)
Cancellation of shares of
restricted stock (9,089) - - (175) 175 - - - - -
Amortization of deferred
compensation - - - - 7,675 - - - - 7,675
Exercise of stock options 392,012 - 4 4,700 - - - - - 4,704
Exercise of stock warrants 1,265,280 - 12 12,718 - - - - - 12,730
Issuance of common stock on
conversion of convertible
debentures 155,818 - 2 2,654 - - - - - 2,656
Payments on Loan to Executive
Deferred Compensation Plan - - - - - - 64 - - 64
Payments on Employee Stock
Ownership Plan debt - - - - - - 1,500 - - 1,500
Change in unrealized gain
(loss) on securities
available for sale, net - - - - - - - 12,862 - 12,862
---------- ---- ---- -------- -------- -------- ------- -------- -------- --------
Balance, December 31, 1995 35,604,531 - 356 243,122 (11,195) 283,821 (131) 11,702 - 527,675
Net income - - - - - 26,287 - - - 26,287
Dividends on common stock - - - - - (5,596) - - - (5,596)
Purchase of 40,000 shares to
be held in treasury - - - - - - - - (1,401) (1,401)
Issuance of shares of
restricted stock 33,400 - - 2,354 (2,341) - - - - 13
Cancellation of shares of
restricted stock (18,200) - - (496) 496 - - - - -
Amortization of deferred
compensation - - - - 1,836 - - - - 1,836
Exercise of stock options 249,826 - 3 2,898 - - - - - 2,901
Issuance of common stock on
conversion of convertible
debentures 5,280 - - 90 - - - - - 90
Payments on Loan to Executive
Deferred Compensation Plan - - - - - - 15 - - 15
Change in unrealized gain
(loss) on securities
available for sale, net - - - - - - - (10,801) - (10,801)
---------- ---- ---- -------- -------- -------- ------- -------- -------- --------
Balance, March 31, 1996 35,874,837 $ - $359 $247,968 $(11,204) $304,512 $ (116) $ 901 $ (1,401) $541,019
---------- ---- ---- -------- -------- -------- ------- -------- -------- --------
---------- ---- ---- -------- -------- -------- ------- -------- -------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
Annual financial statements are subject to audit.
6
<PAGE>
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Basis of Presentation
In the opinion of management, the accompanying unaudited
consolidated financial statements contain all adjustments
(consisting of normal recurring accruals) considered necessary for a
fair presentation. The results of operations for interim periods
are not necessarily indicative of the results to be expected for the
entire year.
The accompanying unaudited consolidated financial statements have
been prepared in accordance with the instructions to Form 10-Q and
therefore do not include all information and notes necessary for
complete financial statements in conformity with generally accepted
accounting principles. The material under the heading "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" is written with the presumption that the users of the
interim financial statements have read or have access to the most
recent Annual Report on Form 10-K of TCF Financial Corporation
("TCF" or the "Company"), which contains the latest audited
financial statements and notes thereto, together with Management's
Discussion and Analysis of Financial Condition and Results of
Operations as of December 31, 1995 and for the year then ended. TCF
is a holding company engaged primarily in retail community banking
and consumer finance lending through its wholly owned savings bank
subsidiaries, TCF Bank Minnesota fsb ("TCF Minnesota") and Great
Lakes Bancorp, A Federal Savings Bank ("Great Lakes"). TCF Bank
Illinois fsb ("TCF Illinois") and TCF Bank Wisconsin fsb ("TCF
Wisconsin") are wholly owned subsidiaries of TCF Minnesota. All
significant intercompany accounts and transactions have been
eliminated in consolidation. Certain reclassifications have been
made to prior period financial statements to conform to the current
period presentation. For consolidated statements of cash flows
purposes, cash and cash equivalents include cash and due from banks.
(2) Earnings Per Common Share
The weighted average number of common and common equivalent shares
outstanding used to compute earnings per common share were
35,986,216 and 34,345,982 for the three months ended March 31, 1996
and 1995, respectively. The effect of outstanding stock options and
common stock warrants is excluded from the 1995 earnings per common
share computation as the effect is antidilutive.
7
<PAGE>
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
Item 2. - Management's Discussion and Analysis of Financial
Condition and Results of Operations
RESULTS OF OPERATIONS
TCF reported record net income of $26.3 million for the first quarter of 1996,
compared with a net loss of $12.6 million for the same 1995 period. Net income
available to common shareholders for the first three months of 1996 was $26.3
million, or 73 cents per common share, compared with a net loss available to
common shareholders of $13.3 million, or 39 cents per common share, for the
first quarter of 1995.
TCF's 1995 first quarter results included certain merger-related charges
incurred in connection with TCF's February 8, 1995 acquisition of Great Lakes.
On an after-tax basis, these merger-related charges totaled $32.8 million, or 95
cents per common share for the first quarter of 1995.
TCF's 1996 first quarter results of operations show continued improvement in the
Company's core operating earnings. Net income for the first quarter of 1996 was
$26.3 million, or 73 cents per common share, up 29.9% from $20.2 million, or 56
cents per common share, excluding the $32.8 million in after-tax merger-related
charges for the same 1995 period. Return on average assets was a record 1.48%
for the first quarter of 1996, compared with 1.08% before merger-related charges
for the same 1995 period. On the same basis, return on average realized common
equity was 19.97% for the first three months of 1996, compared with 17.43% for
the first quarter of 1995.
There are many uncertainties that may make TCF's historical performance an
unreliable indicator of its future performance. Forward-looking information,
including projections of future performance, is subject to numerous possible
adverse developments. These include, but are not limited to, the possibility of
adverse economic developments which may increase default and delinquency risks
in TCF's loan portfolios, and in particular its growing consumer finance
portfolios; shifts in interest rates which may result in shrinking interest rate
margins; deposit outflows; interest rates on competing investments; demand for
financial services and loan products; changes in accounting policies or
guidelines, monetary and fiscal policies of the Federal government; changes in
the quality or composition of TCF's loan and investment portfolios; or other
significant uncertainties. In addition, federal legislation has been proposed
that would significantly affect the banking industry.
See "- Non-Interest Expense."
Net Interest Income
- -------------------
Net interest income for the first quarter of 1996 was a record $84.5 million, up
11.6% from $75.6 million for the first quarter of 1995. The net interest margin
for the first quarter of 1996 was a record 5.06%, up from 4.31% for the same
1995 period. TCF's net interest income and net interest margin increased
primarily due to increased yields and growth of consumer loans, the November 30,
1995 redemption of $34.5 million of 10% subordinated capital notes, the
favorable impact of the 1995 Great Lakes merger-related restructuring
activities, and increased capital.
If variable index rates (e.g., prime) were to decline, TCF may experience
compression of its net interest margin depending on the timing and amount of any
reductions, as it is likely that interest rates paid on retail deposits will not
decline as quickly, or to the same extent, as the decline in the yield on
interest-rate-sensitive assets such as home equity loans. In addition,
competition for checking, savings and money market deposits, an important source
of lower cost funds for TCF, has intensified among
8
<PAGE>
depository and other financial institutions. TCF may experience compression
in its net interest margin if the rates paid on deposits increase. Changes
in net interest income are dependent upon the movement of interest rates, the
volume and the mix of interest-earning assets and interest-bearing
liabilities, and the level of non-performing assets. See "Asset/Liability
Management - Interest-Rate Risk" and "Financial Condition - Deposits."
The following rate/volume analysis details the increases (decreases) in net
interest income resulting from interest rate and volume changes during the first
quarter of 1996 as compared to the same period last year. Changes attributable
to the combined impact of volume and rate have been allocated proportionately to
the change due to volume and the change due to rate.
<TABLE>
Three Months Ended
March 31, 1996
Versus Same Period in 1995
---------------------------------
Increase (Decrease) Due to
---------------------------------
(In thousands) Volume Rate Total
-------- ------- --------
<S> <C> <C> <C>
Securities available for sale $ 18,757 $ (18) $ 18,739
-------- ------- --------
Loans held for sale 1,079 (471) 608
-------- ------- --------
Mortgage-backed securities held to maturity (25,846) - (25,846)
-------- ------- --------
Loans:
Residential real estate (2,607) 1,915 (692)
Commercial real estate (650) 100 (550)
Commercial business (400) (363) (763)
Consumer 7,195 2,193 9,388
-------- ------- --------
Total loans 3,538 3,845 7,383
-------- ------- --------
Investments:
Interest-bearing deposits with banks (231) (11) (242)
Federal funds sold (85) (8) (93)
U.S. Government and other marketable
securities held to maturity 3 (5) (2)
FHLB stock (447) 2 (445)
-------- ------- --------
Total investments (760) (22) (782)
-------- ------- --------
Total interest income (3,232) 3,334 102
-------- ------- --------
Deposits:
Checking (105) (384) (489)
Passbook and statement (420) (738) (1,158)
Money market (524) (716) (1,240)
Certificates (2,179) 1,457 (722)
-------- ------- --------
Total deposits (3,228) (381) (3,609)
-------- ------- --------
Borrowings:
Securities sold under repurchase agreements 1,400 (834) 566
FHLB advances (3,664) (1,311) (4,975)
Subordinated debt (1,128) 216 (912)
Collateralized obligations (12) (77) (89)
Other borrowings 300 15 315
-------- ------- --------
Total borrowings (3,104) (1,991) (5,095)
-------- ------- --------
Total interest expense (6,332) (2,372) (8,704)
-------- ------- --------
Net interest income $ 3,100 $ 5,706 $ 8,806
-------- ------- --------
-------- ------- --------
</TABLE>
9
<PAGE>
Provisions for Credit and Real Estate Losses
- ---------------------------------------------
TCF provided $2.8 million for credit losses in the first quarter of 1996,
compared with $6.7 million for the same prior-year period. The provision for
credit losses in the first quarter of 1995 includes $5 million in merger-related
provisions, which were established to conform Great Lakes' credit loss reserve
practices and methods to those of TCF and to allow for the accelerated
disposition of Great Lakes' remaining problem assets. The provision for real
estate losses for the first quarter of 1996 was $448,000, compared with $163,000
for the same prior-year period.
TCF's lending activities reflect its community banking philosophy, emphasizing
loans to individuals and small to medium-sized businesses in its primary market
areas in the Midwest. In recent years, TCF has expanded its consumer lending
and consumer finance operations and placed relatively less emphasis on new
commercial real estate lending. See "Financial Condition - Loans." While TCF's
investments in commercial real estate loans, commercial business loans and
related properties acquired through foreclosure or by other means have
significantly decreased in recent years, such loans and investments have larger
individual balances and a substantially greater inherent risk of loss. The risk
of loss on such loans and properties is difficult to quantify and is subject to
fluctuations in real estate values. In addition, concerns remain over the
future course of the economy and particularly the related impact on the real
estate values associated with these loans and properties. At March 31, 1996,
the allowances for loan and real estate losses and industrial revenue bond
reserves totaled $69.9 million, compared with $69.2 million at year-end 1995.
See "Financial Condition - Allowances for Loan and Real Estate Losses and
Industrial Revenue Bond Reserves".
Non-Interest Income
- -------------------
Non-interest income is a significant source of revenues for TCF and an important
factor in TCF's results of operations. Providing a wide range of retail banking
services is an integral component of TCF's business philosophy and a major
strategy for generating additional non-interest income. Excluding the gain on
sale of branches and the 1995 losses from merger-related asset sales at Great
Lakes, non-interest income increased $4.4 million, or 14.6%, to $34.6 million
for the first quarter of 1996, compared with $30.2 million for the same period
in 1995. The increase was primarily due to increases in fee and service charge
revenues, title insurance revenues, gains on sales of loans held for sale and
mutual fund revenues.
Fee and service charge revenues totaled $22.6 million for the first quarter of
1996, an 8.9% increase from $20.8 million for the same 1995 period. The increase
is primarily due to expanded retail banking activities and reflects a $1.7
million increase in deposit fees.
Data processing revenue totaled $2.5 million for the first quarter of 1996, a
3.6% increase from $2.4 million for the same 1995 period. This increase
reflects TCF's efforts to provide and expand electronic banking transaction
services through its automated teller machine ("ATM") network. TCF expanded its
network of ATMs to 792 at March 31, 1996, installing 35 ATMs during the first
quarter of 1996. The Company anticipates a continuing expansion of its ATM
network during the remainder of 1996.
Commissions on sales of annuities totaled $2.2 million during the first quarter
of 1996 compared with $2.4 million for the same 1995 period. Sales of annuities
may fluctuate from period to period, and future sales levels will depend upon
continued favorable tax treatment, the level of interest rates, general economic
conditions and investor preferences.
10
<PAGE>
Title insurance revenues totaled $3.6 million during the first quarter of 1996,
compared with $2.3 million for the first quarter of 1995. Title insurance
revenues are cyclical in nature and are largely dependent on the level of
residential real estate loan originations and refinancings.
Gains on sales of loans held for sale totaled $1.5 million during the first
quarter of 1996, compared with $576,000 during the same period in 1995. TCF
adopted SFAS No. 122, "Accounting for Mortgage Servicing Rights", on a
prospective basis effective April 1, 1995. As a result, $1.3 million of
originated mortgage servicing rights were capitalized in the first quarter of
1996, and were included in gains on sales of loans held for sale. Gains or
losses on sales of loans held for sale and securities available for sale may
fluctuate significantly from period to period due to changes in interest rates
and volumes, and results in any period related to these transactions may not be
indicative of results which will be obtained in future periods.
TCF's results for the first quarter of 1995 included a pretax gain of $523,000
on the sale of $51 million of third-party loan servicing rights. TCF
periodically sells loan servicing rights depending on market conditions. TCF's
third-party residential loan servicing portfolio totaled $4.5 billion at March
31, 1996, unchanged from December 31, 1995.
During the first quarter of 1996, TCF recognized a $1.2 million gain on the sale
of two branches located outside its primary retail markets in Michigan.
During the first quarter of 1995, Great Lakes sold $232.2 million of
collateralized mortgage obligations from its held-to-maturity portfolio at a
pretax loss of $21 million. Also in the 1995 first quarter, Great Lakes sold
$17.3 million of mortgage-backed securities, private issuer collateralized
mortgage obligations, corporate securities and structured notes from its
available-for-sale portfolio at a pretax loss of $310,000. These merger-related
asset sales were completed as part of TCF's strategy to reduce Great Lakes'
interest-rate and credit risk to levels consistent with TCF's existing interest-
rate risk position and credit risk policy.
11
<PAGE>
Non-Interest Expense
- --------------------
Non-interest expense (excluding the provision for real estate losses and 1995
merger-related charges) totaled $75.4 million for the first quarter of 1996, up
6.4% from $70.8 million for the same 1995 period. The increased expenses in
1996 were primarily due to costs associated with expanded consumer lending and
consumer finance operations, and other retail banking activities. The following
table presents the components of non-interest expense:
<TABLE>
Three Months Ended
March 31, Percentage
-------------------- Increase
(Dollars in thousands) 1996 1995 (Decrease)
------- ------- ----------
<S> <C> <C> <C>
Compensation and employee benefits $36,434 $35,653 2.2%
Occupancy and equipment 12,837 12,495 2.7
Advertising and promotions 4,732 4,452 6.3
Federal deposit insurance premiums
and assessments 3,161 3,472 (9.0)
Amortization of goodwill and
other intangibles 795 790 .6
Other 17,399 13,979 24.5
------- -------
75,358 70,841 6.4
Provision for real estate losses 448 163 174.8
Merger-related charges:
Merger-related expenses - 21,733 (100.0)
Cancellation cost on early
termination of interest-rate
exchange contracts - 4,423 (100.0)
------- -------
Total non-interest expense $75,806 $97,160 (22.0)
------- -------
------- -------
</TABLE>
Compensation and employee benefits expense totaled $36.4 million for the 1996
first quarter, compared with $35.7 million for the same period in 1995. This
increase of $781,000, or 2.2%, was primarily due to the expansion of consumer
lending, consumer finance operations and other retail banking activities.
Advertising and promotion expenses totaled $4.7 million for the first quarter of
1996, an increase of $280,000, or 6.3%, from the same period in 1995. The
increase reflects the increase in direct mail and other marketing expenses
relating to the promotion of TCF's consumer lending and deposit products.
Federal deposit insurance premiums and assessments totaled $3.2 million for the
first quarter of 1996, compared with $3.5 million for the same period in 1995.
The decrease was primarily due to lower deposit levels and a decrease in the
deposit insurance premium rate of Great Lakes subsequent to its acquisition by
TCF. The thrift industry currently pays significantly higher deposit insurance
premiums than those paid by banks in the lowest-risk category, which now pay de
minimis premiums. Proposed federal legislation to recapitalize the Savings
Association Insurance Fund ("SAIF") would entail charging savings institutions a
one-time special assessment. The proposed assessment, estimated to be .80% of
total insured deposits, or approximately $42.7 million pretax and $26.7 million
after-tax for TCF, would be tax deductible for federal and state income tax
purposes and would be in addition to TCF's annual deposit insurance premium.
Deposit insurance premium rates would likely decline following such a charge.
The assessment amount could change significantly depending on when the
assessment is actually imposed, future losses of the insurance fund and other
factors.
Other non-interest expense totaled $17.4 million for the 1996 first quarter, a
24.5% increase from $14 million for the same period in 1995. The increase was
primarily due to initial costs associated with the consolidation of certain back
office operations,
12
<PAGE>
and the expansion of TCF's consumer lending and consumer finance operations,
and other retail banking activities. In addition, the increase reflects an
increase in state business taxes due to improved profitability.
Merger-related expenses for the first quarter of 1995 include $13.9 million of
equipment charges which reflect costs associated with the integration of Great
Lakes' data processing system into TCF's and the write-off of certain redundant
data processing equipment and software. Also included in the first quarter of
1995 merger-related expenses are $4.7 million of employment contract, severance
and employee benefit costs reflecting the consolidation of certain Great Lakes
functions such as data processing, investments and certain other back office
operations. The data processing conversion and consolidation of functions was
completed in 1995. Merger-related expenses for the first quarter of 1995 also
include $2.2 million of expenses for professional services, including investment
advisor, legal and accounting services, and $864,000 of other expenses which
were incurred by Great Lakes as a direct result of the merger.
During the first quarter of 1995, Great Lakes prepaid Federal Home Loan Bank
("FHLB") advances, paid down wholesale borrowings and terminated interest-rate
exchange contracts. Great Lakes prepaid $112.3 million of FHLB advances at a
pretax loss of $1.5 million. This amount, net of a $578,000 income tax benefit,
was recorded as an extraordinary item. Interest-rate exchange contracts with
notional principal amounts totaling $544.5 million were terminated by Great
Lakes at a pretax loss of $4.4 million. These actions were taken in order to
reduce Great Lakes' level of higher-cost wholesale borrowings and to reduce
interest-rate risk.
Effective January 1, 1996, TCF adopted Statement of Financial Accounting
Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of." The adoption of SFAS No. 121 did
not impact TCF's financial condition or results of operations for the first
quarter of 1996 or any prior period. In accordance with SFAS No. 121, prior
period financial statements have not been restated to reflect this adoption.
SFAS No. 123, "Accounting for Stock-Based Compensation," establishes financial
accounting and reporting standards for stock-based employee compensation plans.
SFAS No. 123 defines a fair value based method of accounting for an employee
stock option or similar equity instrument and encourages all entities to adopt
that method of accounting for all of their employee stock compensation plans.
However, it also allows an entity to continue to measure compensation cost for
those plans using the intrinsic value based method of accounting prescribed by
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued
to Employees." The accounting requirements of SFAS No. 123 are effective for
transactions entered into in fiscal years that begin after December 15, 1995.
TCF has elected to retain the intrinsic value based method of accounting
prescribed by APB Opinion No. 25 and to make the supplemental annual pro forma
disclosures of net income and earnings per common share required by SFAS No.
123.
Income Taxes
- ------------
TCF recorded income tax expense of $15.4 million, or 36.9% of income before
income tax expense and extraordinary item, for the first quarter of 1996,
compared with an income tax benefit of $7.7 million, or 39.8% of loss before
income tax benefit and extraordinary item, during the same 1995 period. The
lower rate in the 1996 first quarter reflects increased profitability and the
lack of merger-related expenses in 1996.
13
<PAGE>
ASSET/LIABILITY MANAGEMENT - INTEREST-RATE RISK
TCF's results of operations are dependent to a large degree on its net
interest income, which is the difference between interest income and interest
expense. Like most financial institutions, TCF's interest income and cost of
funds are significantly affected by general economic conditions and by
policies of regulatory authorities. The mismatch between maturities and
interest-rate sensitivities of assets and liabilities results in
interest-rate risk. Although the measure is subject to a number of
assumptions and is only one of a number of methods used to measure
interest-rate risk, management believes the interest-rate gap (difference
between interest-earning assets and interest-bearing liabilities repricing
within a given period) is an important indication of TCF's exposure to
interest-rate risk and the related volatility of net interest income in a
changing interest rate environment. In addition to the interest-rate gap
analysis, management also utilizes a simulation model to measure and manage
TCF's interest-rate risk.
For an institution with a negative interest-rate gap for a given period, the
amount of its interest-bearing liabilities maturing or otherwise repricing
within such period exceeds the amount of interest-earning assets repricing
within the same period. In a rising interest rate environment, institutions
with negative interest-rate gaps will generally experience more immediate
increases in the cost of their liabilities than in the yield on their assets.
Conversely, the yield on assets of institutions with negative interest-rate gaps
will generally decrease more slowly than the cost of their funds in a falling
interest rate environment.
TCF's Asset/Liability Management Committee manages TCF's interest-rate risk
based on interest rate expectations and other factors. Management's estimates
and assumptions could be significantly affected by external factors such as
prepayment rates other than those assumed, early withdrawals of deposits,
changes in the correlation of various interest-bearing instruments, and
competition. Decisions by management to purchase or sell assets, or retire debt
could change the maturity/repricing and spread relationships. TCF's one-year
adjusted interest-rate gap was a negative $132.5 million, or (2)% of total
assets, at March 31, 1996, compared with a negative $189.5 million, or (3)% of
total assets, at December 31, 1995.
14
<PAGE>
FINANCIAL CONDITION
Investments
- -----------
Total investments decreased $5.1 million from year-end 1995 to $59.2 million at
March 31, 1996, reflecting a decrease in FHLB stock.
Securities Available for Sale
- -----------------------------
Securities available for sale are carried at fair value with the unrealized
gains or losses, net of deferred income taxes, reported as a separate component
of stockholders' equity. At March 31, 1996, TCF's securities available-for-sale
portfolio included $997.1 million and $120.3 million of fixed-rate and
adjustable-rate mortgage-backed securities, respectively. Securities available
for sale decreased $84.1 million from year-end 1995 to $1.1 billion at March 31,
1996, primarily due to repayment and prepayment activity. The following table
summarizes securities available for sale:
<TABLE>
At March 31, 1996 At December 31, 1995
---------------------- -----------------------
Amortized Fair Amortized Fair
(In thousands) Cost Value Cost Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. Government and other
marketable securities:
U.S. Government and agency
obligations $ - $ - $ 1,001 $ 1,005
Marketable equity
securities - - 3 57
---------- ---------- ---------- ----------
- - 1,004 1,062
---------- ---------- ---------- ----------
Mortgage-backed securities:
FHLMC 339,386 338,731 356,021 360,631
FNMA 618,550 618,944 643,572 655,568
GNMA 128,991 132,127 134,550 138,723
Private issuer 26,901 25,981 28,148 26,903
Collateralized mortgage
obligations 1,801 1,656 18,945 18,603
---------- ---------- ---------- ----------
1,115,629 1,117,439 1,181,236 1,200,428
---------- ---------- ---------- ----------
$1,115,629 $1,117,439 $1,182,240 $1,201,490
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
Loans Held for Sale
- -------------------
Residential real estate and education loans held for sale are carried at the
lower of cost or market. Loans held for sale increased $7.1 million from
year-end 1995, totaling $249.5 million at March 31, 1996. The following table
summarizes loans held for sale:
<TABLE>
At At
March 31, December 31,
(In thousands) 1996 1995
--------- ------------
<S> <C> <C>
Residential real estate $ 83,137 $ 80,089
Education 165,830 163,168
-------- --------
248,967 243,257
Less:
Deferred loan costs, net (642) (564)
Unearned discounts, net 111 1,408
-------- --------
$249,498 $242,413
-------- --------
-------- --------
</TABLE>
15
<PAGE>
Loans
- -----
The following table sets forth information about loans held in TCF's portfolio,
excluding loans held for sale:
<TABLE>
At At
March 31, December 31,
(In thousands) 1996 1995
---------- -----------
<S> <C> <C>
Residential real estate $2,495,466 $2,618,725
---------- ----------
Commercial real estate:
Apartments 389,188 405,975
Other permanent 495,935 504,861
Construction and development 66,799 59,927
---------- ----------
951,922 970,763
---------- ----------
Total real estate 3,447,388 3,589,488
---------- ----------
Commercial business 167,388 167,663
---------- ----------
Consumer:
Home equity 1,127,433 1,112,996
Automobile and marine 365,851 323,074
Credit card 41,882 45,123
Loans secured by deposits 9,714 10,034
Other secured 18,189 18,364
Unsecured 78,044 83,848
---------- ----------
1,641,113 1,593,439
---------- ----------
5,255,889 5,350,590
Less:
Unearned discounts on loans purchased 2,993 3,126
Deferred loan fees, net 7,426 8,390
Unearned discounts and finance charges, net 70,547 61,973
---------- ----------
$5,174,923 $5,277,101
---------- ----------
---------- ----------
</TABLE>
Total loans decreased $102.2 million from year-end 1995 to $5.2 billion at March
31, 1996. Residential real estate loans totaled $2.5 billion at March 31, 1996,
a decrease of $123.3 million from December 31, 1995. This decrease largely
reflects an increase in loan repayment activity.
Consumer loans totaled $1.6 billion at March 31, 1996, an increase of $47.7
million from December 31, 1995. This change was primarily due to a $42.8
million increase in automobile and marine loans and a $14.4 million increase in
home equity loans. The growth in automobile and marine loans and home equity
loans reflects TCF's expanded consumer lending and consumer finance operations.
Consumer loan growth in recent years reflects TCF's emphasis on expanding its
portfolio of these higher-yielding, shorter-term loans, including home equity
lines of credit. At March 31, 1996, TCF's average home equity line of credit
was approximately $35,000 and the average loan balance outstanding was
approximately $19,000, or 54% of the available line.
TCF continues to expand its consumer finance lending through its consumer
finance subsidiaries, collectively referred to herein as the "Consumer Finance
Subsidiaries." TCF has significantly expanded its consumer finance operations
in recent periods and opened two consumer finance offices during the first
quarter of 1996. As of March 31, 1996, TCF had 72 consumer finance offices in
16 states. As a result of this expansion, TCF's consumer finance loan portfolio
totaled $419.5 million at March 31, 1996, compared with $374.4 million at
December 31, 1995. The Company intends to concentrate on increasing the
outstanding loan balances of these existing offices and improving the
profitability of the Consumer Finance Subsidiaries in 1996.
16
<PAGE>
The Consumer Finance Subsidiaries primarily originate home equity and automobile
and marine loans and purchase automobile and marine loans. The Consumer Finance
Subsidiaries also engage in the origination of loans through loan brokers.
Automobile and marine loans comprise $244 million, or 58.2% of total consumer
finance loans outstanding at March 31, 1996. Home equity loans comprise $162.1
million, or 38.6% of total consumer finance loans outstanding at March 31, 1996.
The average individual balance of consumer finance automobile and marine loans,
and home equity loans were $8,000 and $30,000, respectively, at March 31, 1996.
The Consumer Finance Subsidiaries are seeking to increase the percentage of home
equity loans to total consumer finance loans over time.
Through their purchases of automobile and marine loans, the Consumer Finance
Subsidiaries provide indirect financing. The Consumer Finance Subsidiaries
serve as an alternative source of financing to customers who might otherwise
not be able to obtain financing from more traditional sources of financing.
Included in the consumer finance loans at March 31, 1996 are $200.5 million
of sub-prime automobile and marine loans which carry a higher level of credit
risk and higher interest rates. The term sub-prime reflects the Company's
assessment of credit risk and bears no relationship to the prime rate of
interest or persons who are able to borrow at that rate. There can be no
assurances that the Company's sub-prime lending criteria are the same as
those utilized by other lenders. Loans classified as sub-prime are to
borrowers that because of significant past credit problems or limited credit
histories are unable to obtain credit from traditional sources. Although
competition in the sub-prime lending market has increased, the Company
believes that sub-prime borrowers represent a substantial market and their
demand for financing has not been served by traditional lending sources. The
underwriting criteria for loans originated by the Consumer Finance
Subsidiaries generally have been less stringent than those historically
adhered to by TCF's savings bank subsidiaries and, as a result, carry a
higher level of credit risk and higher interest rates. The rapid expansion of
the higher-risk lending engaged in by the Consumer Finance Subsidiaries is
expected, as these portfolios mature, to result in increases in consumer loan
loss and delinquency ratios. These portfolios also represent an increased
risk of loss in the event of adverse economic developments. Although TCF
believes that experienced finance company management and underwriting
criteria enable the Consumer Finance Subsidiaries to evaluate effectively the
creditworthiness of sub-prime borrowers and the adequacy of the collateral,
sub-prime lending is inherently more risky than traditional lending and there
can be no assurance that all appropriate underwriting criteria have been
identified or weighted properly in the assessment of credit risk, or will
afford adequate protection against the higher risks inherent in lending to
sub-prime borrowers. Applicable underwriting criteria include standards for
term; amount of downpayment, installment payment and interest rate; amount of
loan in relation to the value of the collateral; credit history and debt
serviceability; and other factors. These criteria are subject to change from
time to time as circumstances may warrant.
The Consumer Finance Subsidiaries anticipate expanding their loan programs to
include typical bank or prime borrowers in states in which TCF does not operate
savings banks. The underwriting criteria for these loans will be similar to
those historically adhered to by TCF; as a result, these loans will have lower
interest rates than typical consumer finance loans.
17
<PAGE>
The following table sets forth the geographical locations (based on the location
of the office originating or purchasing the loan) of TCF's consumer finance loan
portfolio (dollars in thousands):
<TABLE>
At March 31, 1996 At December 31, 1995
------------------- --------------------
Loan Loan
Balance Percent Balance Percent
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Illinois $124,755 29.7% $116,866 31.2%
Minnesota 100,884 24.0 96,533 25.7
Wisconsin 31,052 7.4 27,911 7.4
Georgia 26,278 6.3 23,044 6.2
Florida 23,581 5.6 19,925 5.3
Missouri 21,462 5.1 19,295 5.2
Kentucky 14,827 3.5 13,017 3.5
Tennessee 13,408 3.2 11,474 3.1
Ohio 13,318 3.2 11,459 3.1
North Carolina 12,779 3.1 8,053 2.2
Mississippi 11,145 2.7 9,187 2.5
Michigan 7,311 1.7 2,837 .7
Colorado 6,683 1.6 5,337 1.4
Other 12,017 2.9 9,456 2.5
-------- ----- -------- -----
Total consumer finance loans $419,500 100.0% $374,394 100.0%
-------- ----- -------- -----
-------- ----- -------- -----
</TABLE>
Since many of the consumer finance offices are new and are outside TCF's
traditional market areas, the geographical location of consumer finance loans
may change significantly in future periods. TCF believes that the most
important requirements to succeed in the sub-prime financing market are the
ability to control borrower and dealer misrepresentations at the point of
origination; the development and consistent implementation of objective
underwriting criteria specifically designed to evaluate the creditworthiness of
sub-prime borrowers; and the maintenance of an active program to monitor
performance and collect payments.
Commercial real estate loans decreased $18.8 million from year-end 1995 to
$951.9 million at March 31, 1996. Commercial business loans decreased $275,000
in the first three months of 1996 to $167.4 million at March 31, 1996. TCF is
seeking to expand its commercial real estate and commercial business lending
activity to borrowers located in its primary midwestern markets in an attempt to
maintain the size of these lending portfolios and, where feasible under local
economic conditions, achieve some growth in these lending categories over time.
These loans generally have larger individual balances and a substantially
greater inherent risk of loss. The risk of loss is difficult to quantify and is
subject to fluctuations in real estate values. At March 31, 1996, approximately
92% of TCF's commercial real estate loans outstanding were secured by properties
located in its primary markets. At March 31, 1996, the average individual
balance of commercial real estate loans and commercial business loans was
$583,000 and $230,000, respectively.
Included in performing loans at March 31, 1996 are commercial real estate loans
aggregating $1.6 million with terms that have been modified in troubled debt
restructurings, unchanged from December 31, 1995.
The results of hotel and motel operations are susceptible to changes in
prevailing economic conditions. Included in commercial real estate loans at
March 31, 1996 are $82.4 million of loans secured by hotel and motel
properties. Seven loans comprise $41.3 million, or 50.2%, of the total hotel
and motel portfolio. Of the total hotel and motel portfolio balance, four
loans totaling $16.4 million are included in loans
18
<PAGE>
subject to management concern and two loans totaling $362,000 are included in
non-accrual loans. TCF continues to closely monitor the performance of these
loans and properties.
At March 31, 1996, the recorded investment in loans that are considered to be
impaired was $25.7 million for which the related allowance for credit losses was
$6.4 million. All of these loans were on non-accrual status. The average
recorded investment in impaired loans during the three months ended March 31,
1996 was $28.2 million. For the three months ended March 31, 1996, TCF
recognized interest income on impaired loans of $139,000, all of which was
recognized using the cash basis method of income recognition.
Allowances for Loan and Real Estate Losses and Industrial Revenue Bond Reserves
- -------------------------------------------------------------------------------
A summary of the activity of the allowances for loan and real estate losses and
industrial revenue bond reserves, and selected statistics follows (dollars in
thousands):
<TABLE>
Three Months Ended Three Months Ended
March 31, 1996 March 31, 1995
-------------------------------- ---------------------------------
Industrial Industrial
Revenue Revenue
Allowance for Loan Losses and Allowance for Bond Allowance for Bond
Industrial Revenue Bond Reserves: Loan Losses Reserves Total Loan Losses Reserves Total
------------- ---------- ----- ------------- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of period $65,695 $1,960 $67,655 $56,343 $2,759 $59,102
Provision for credit losses 3,002 (200) 2,802 6,763 (75) 6,688
Charge-offs (3,586) - (3,586) (2,373) - (2,373)
Recoveries 1,668 - 1,668 1,650 - 1,650
------- ------ ------- ------- ------ -------
Net charge-offs (1,918) - (1,918) (723) - (723)
------- ------ ------- ------- ------ -------
Balance at end of period $66,779 $1,760 $68,539 $62,383 $2,684 $65,067
------- ------ ------- ------- ------ -------
------- ------ ------- ------- ------ -------
Allowance for loan losses as a
percentage of gross loan balances,
excluding loans held for sale 1.27% 1.18%
</TABLE>
<TABLE>
Three Months Ended
March 31,
------------------
Allowance for Real Estate Losses: 1996 1995
------ ------
<S> <C> <C>
Balance at beginning of period $1,526 $2,576
Provision for losses 448 163
Charge-offs (643) (766)
------ ------
Balance at end of period $1,331 $1,973
------ ------
------ ------
</TABLE>
On an ongoing basis, TCF's loan and real estate portfolios are carefully
reviewed and thoroughly analyzed as to credit risk, performance, collateral
value and quality. The allowance for loan losses is maintained at a level
believed to be adequate by management to provide for estimated loan losses.
Management's judgment as to the adequacy of the allowance is a result of
ongoing review of larger individual loans, the overall risk characteristics
of the portfolio, changes in the character or size of the portfolio, the
level of non-performing assets, net charge-offs, geographic location and
prevailing economic conditions. The allowance for loan losses is established
for known or anticipated problem loans, as well as for loans which are not
currently known to require specific allowances for loss. Loans are charged
off to the extent they are deemed to be uncollectible. The unallocated
portion of TCF's allowance for loan losses totaled $17.8 million at March 31,
1996, unchanged from December 31, 1995.
19
<PAGE>
The allowance for real estate losses is based on management's periodic analysis
of real estate holdings and is maintained at a level believed to be adequate by
management to provide for estimated real estate losses. In this analysis,
management considers factors including, but not limited to, general economic and
market conditions, geographic location, composition and appraisals of the real
estate holdings and property conditions. The carrying values of foreclosed real
estate are based on appraisals, prepared by certified appraisers, whenever
possible. TCF reviews each external commercial real estate appraisal it
receives for accuracy, completeness and reasonableness of assumptions used. The
allowance for real estate losses is established to reduce the carrying value of
real estate to fair value less disposition costs. Estimates of costs to
complete or ready a project for sale, costs of disposal and costs to carry real
estate until estimated disposition are considered in establishing the initial
recorded investment in real estate. A renewed weakness in commercial real
estate markets may result in further declines in the values of TCF's real estate
or the sale of individual properties at less than previously estimated values,
resulting in additional charge-offs. TCF recognizes the effect of such events
in the periods in which they occur.
Prior to being acquired by TCF in 1993, Republic Capital Group, Inc. had entered
into agreements guaranteeing certain industrial development and housing revenue
bonds issued by municipalities to finance commercial and multi-family real
estate owned by third parties. In the event a third-party borrower defaults on
principal or interest payments on the bonds, TCF, as acquiring entity, is
required to either fund the amount in default or acquire the then outstanding
bonds. TCF may foreclose on the underlying real estate to recover amounts in
default. The balance of such financial guarantees at March 31, 1996 was $12.6
million, down from $13.5 million at December 31, 1995. The provision for credit
losses on industrial revenue bond financial guarantees for the three months
ended March 31, 1996 and March 31, 1995 reflects a reduction in the balance of
the financial guarantees. Management has considered these guarantees in its
review of the adequacy of the industrial revenue bond reserves, which are
included in other liabilities in the Consolidated Statements of Financial
Condition.
The adequacy of the allowances for loan and real estate losses and industrial
revenue bond reserves is highly dependent upon management's estimates of
variables affecting valuation, appraisals of collateral, evaluations of
performance and status, and the amounts and timing of future cash flows expected
to be received on impaired loans. Such estimates, appraisals, evaluations and
cash flows may be subject to frequent adjustments due to changing economic
conditions and the economic prospects of borrowers or properties. These
estimates are reviewed periodically and adjustments, if necessary, are reported
in the provisions for credit and real estate losses in the periods in which they
become known. Management believes the allowances for loan and real estate
losses and industrial revenue bond reserves are adequate.
Non-Performing Assets
- ---------------------
Non-performing assets (principally non-accrual loans and real estate acquired
through foreclosure) totaled $63.1 million at March 31, 1996, down $7.6 million,
or 10.8%, from the December 31, 1995 total of $70.7 million. The decrease in
non-performing assets reflects the accelerated disposition of Great Lakes'
remaining problem assets. At March 31, 1996, 10 commercial real estate loans or
properties comprised $22.8 million, or 36.2%, of total non-performing assets.
These loans or properties had been written down by $5.7 million as of March 31,
1996. Properties acquired are being actively marketed. Approximately 85% of
non-performing assets at March 31, 1996 consist of, or are secured by, real
estate. The accrual of interest income is
20
<PAGE>
generally discontinued when loans become more than 90 days past due with respect
to either principal or interest unless such loans are adequately secured and in
the process of collection. Non-performing assets are summarized in the
following table:
<TABLE>
At At
March 31, December 31,
(Dollars in thousands) 1996 1995
--------- ------------
<S> <C> <C>
Loans (1):
Residential real estate $ 6,702 $ 7,045
Commercial real estate 18,678 22,255
Commercial business 7,073 7,541
Consumer 6,691 7,487
------- -------
39,144 44,328
Real estate and other assets (2) 23,949 26,402
------- -------
Total non-performing assets $63,093 $70,730
------- -------
------- -------
Non-performing assets as a percentage
of net loans 1.24% 1.36%
Non-performing assets as a percentage
of total assets .90 .98
</TABLE>
(1) Included in total loans in the Consolidated Statements of Financial
Condition.
(2) Includes commercial real estate of $8.6 million and $11.4 million at
March 31, 1996 and December 31, 1995, respectively.
TCF had accruing loans 90 days or more past due totaling $369,000 at March 31,
1996, compared with $761,000 at December 31, 1995. These loans are in the
process of collection and management believes they are adequately secured. The
over 30-day delinquency rate on TCF's loans (excluding loans held for sale and
non-accrual loans) was .78% of gross loans outstanding at March 31, 1996,
unchanged from year-end 1995.
TCF's delinquency rates are determined using the contractual method. The
following table sets forth information regarding TCF's over 30-day delinquent
loan portfolio, excluding loans held for sale and non-accrual loans:
<TABLE>
At March 31, 1996 At December 31, 1995
--------------------- -----------------------
Percentage Percentage
Principal of Gross Principal of Gross
(Dollars in thousands) Balances Loans Balances Loans
-------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Consumer:
Savings bank lending $ 9,704 .84% $11,110 .96%
Consumer finance lending 17,205 3.57 16,188 3.77
------- -------
26,909 1.65 27,298 1.72
Residential real estate 11,574 .47 12,056 .46
Commercial real estate 1,090 .12 1,411 .15
Commercial business 1,354 .84 591 .37
------- -------
$40,927 .78 $41,356 .78
------- -------
------- -------
</TABLE>
TCF's over 30-day delinquency rate on gross consumer loans was 1.65% at March
31, 1996, down from 1.72% at year-end 1995. Management continues to monitor the
consumer loan portfolio, which will generally have higher delinquencies,
especially consumer finance loans. TCF's over 30-day delinquency rate on gross
consumer finance loans was 3.57% at March 31, 1996, compared with 3.77% at
December 31, 1995. Consumer finance lending is generally considered to involve
a higher level of credit risk. The underwriting criteria for loans originated
by the Consumer Finance Subsidiaries are generally less stringent than those
historically adhered to by TCF's savings bank subsidiaries and, as a result,
these loans have a higher level of credit risk and
21
<PAGE>
higher interest rates. TCF believes that it has in place experienced
personnel and acceptable standards for maintaining credit quality that are
consistent with its goals for expanding its portfolio of these
higher-yielding loans, but no assurance can be given as to the level of
future delinquencies and loan charge-offs.
In addition to the non-accrual, restructured and accruing loans 90 days or
more past due, there were commercial real estate and commercial business
loans with an aggregate principal balance of $48.1 million outstanding at
March 31, 1996 for which management has concerns regarding the ability of the
borrowers to meet existing repayment terms. This amount consists of loans
that were classified for regulatory purposes as substandard, doubtful or
loss, or were to borrowers that currently are experiencing financial
difficulties or that management believes may experience financial
difficulties in the future. This compares with $56.5 million of such loans
at December 31, 1995. Although these loans are secured by commercial real
estate or other corporate assets, they may be subject to future modifications
of their terms or may become non-performing. Management is monitoring the
performance and classification of such loans and the financial condition of
these borrowers.
Liquidity Management
- --------------------
TCF manages its liquidity position to ensure that the funding needs of
depositors and borrowers are met promptly and in a cost-effective manner. Asset
liquidity arises from the ability to convert assets to cash as well as from the
maturity of assets. Liability liquidity results from the ability of TCF to
attract a diversity of funding sources to meet funding requirements promptly.
TCF's wholly owned savings bank subsidiaries are required by federal regulations
to maintain a monthly average minimum asset liquidity ratio of 5%. These
subsidiaries have maintained average monthly liquidity ratios in excess of this
requirement.
Deposits
- --------
Deposits totaled $5.2 billion at March 31, 1996, down $41.5 million from
December 31, 1995. The decrease reflects the previously described sale of two
Michigan branches. Lower interest-cost checking, savings and money market
deposits totaled $2.6 billion, up $62.7 million from year-end 1995, and
comprised 50.9% of total deposits at March 31, 1996. Checking, savings and
money market deposits are an important source of lower cost funds and fee income
for TCF. The Company's weighted average rate for deposits, including
non-interest bearing deposits, decreased to 3.41% at March 31, 1996 from
3.60% at December 31, 1995. The following table summarizes TCF's deposits:
<TABLE>
At March 31, 1996 At December 31, 1995
------------------------------- --------------------------------
Weighted Weighted
Average % of Average % of
(Dollars in thousands) Rate Amount Total Rate Amount Total
-------- ------ ------ -------- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Checking:
Non-interest bearing 0.00% $ 596,956 11.6% 0.00% $ 573,004 11.0%
Interest bearing 1.04 525,770 10.2 1.06 530,268 10.2
---------- ----- ---------- -----
.49 1,122,726 21.8 .51 1,103,272 21.2
Passbook and statement 1.70 868,321 16.9 1.88 841,115 16.2
Money market 3.02 632,732 12.3 3.12 616,667 11.9
Certificates 5.39 2,526,244 49.0 5.56 2,630,498 50.7
---------- ----- ---------- -----
3.41 $5,150,023 100.0% 3.60 $5,191,552 100.0%
---------- ----- ---------- -----
---------- ----- ---------- -----
</TABLE>
22
<PAGE>
Certificates had the following remaining maturities:
<TABLE>
At March 31, 1996 At December 31, 1995
------------------------------------------------- ---------------------------------------------------
Weighted Weighted
(Dollars in Negotiable Average Negotiable Average
millions) Rate Other Total Rate Rate Other Total Rate
---------- ----- ----- -------- --------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Maturity:
0-3 months $117.4 $ 584.1 $ 701.5 5.29% $141.0 $ 617.4 $ 758.4 5.45%
4-6 months 11.7 554.4 566.1 5.30 26.7 474.8 501.5 5.50
7-12 months 6.8 535.7 542.5 5.30 5.5 575.4 580.9 5.52
13-24 months 2.3 448.6 450.9 5.54 1.3 472.5 473.8 5.62
25-36 months .5 137.2 137.7 5.66 1.8 158.8 160.6 5.77
37-48 months .1 61.7 61.8 5.74 .1 82.2 82.3 5.74
49-60 months - 20.2 20.2 5.44 - 26.5 26.5 5.64
Over 60 months - 45.5 45.5 6.44 - 46.5 46.5 6.46
------ -------- -------- ------ -------- --------
$138.8 $2,387.4 $2,526.2 5.39 $176.4 $2,454.1 $2,630.5 5.56
------ -------- -------- ------ -------- --------
------ -------- -------- ------ -------- --------
</TABLE>
Borrowings
- ----------
Borrowings are used primarily to fund the purchase of investments and
securities available for sale. These borrowings totaled $1.3 billion as of
March 31, 1996, down $172.6 million from $1.4 billion at year-end 1995. The
decrease was primarily due to decreases of $80.2 million and $62 million in
securities sold under repurchase agreements and FHLB advances, respectively.
The weighted average rate on borrowings decreased to 5.85% at March 31, 1996,
from 5.98% at December 31, 1995.
23
<PAGE>
TCF's borrowings consist of the following:
<TABLE>
At March 31, 1996 At December 31, 1995
---------------------------------- ---------------------------
Weighted Weighted
Year of Average Average
(Dollars in thousands) Maturity Amount Rate Amount Rate
-------- ---------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
Securities sold under
repurchase agreements 1996 $ 283,258 5.64% $ 363,426 5.91%
1997 75,000 6.12 75,000 6.12
---------- ----------
358,258 5.74 438,426 5.94
---------- ----------
Federal Home Loan Bank
advances 1996 549,339 5.70 589,339 5.79
1997 80,014 5.95 90,014 5.90
1998 128,000 5.76 128,000 5.76
1999 51,000 6.25 63,000 6.38
2000 8,074 7.24 8,074 7.24
2001 15,000 6.97 15,000 6.97
2008 158 6.17 160 6.15
---------- ----------
831,585 5.80 893,587 5.87
---------- ----------
Subordinated debt:
Senior subordinated
debentures 2006 6,248 18.00 6,248 18.00
Convertible subordinated
debentures 2011 7,182 7.25 7,272 7.25
---------- ----------
13,430 12.25 13,520 12.22
---------- ----------
Collateralized obligations:
Collateralized notes 1997 37,500 5.69 37,500 6.19
Less unamortized discount 51 - 59 -
---------- ----------
37,449 5.70 37,441 6.20
---------- ----------
Collateralized mortgage
obligations 2008 2,357 6.50 2,627 6.50
2010 1,552 5.90 1,530 5.90
---------- ----------
3,909 6.26 4,157 6.28
Less unamortized discount 188 - 207 -
---------- ----------
3,721 6.58 3,950 6.61
---------- ----------
41,170 5.78 41,391 6.24
---------- ----------
Other borrowings:
Federal funds purchased 1996 9,500 5.40 14,500 5.58
Bank line of credit 1996 14,925 6.29 40,000 6.53
Other 1998 19 7.60 20 7.60
---------- ----------
24,444 5.95 54,520 6.28
---------- ----------
$1,268,887 5.85 $1,441,444 5.98
---------- ----------
---------- ----------
</TABLE>
At March 31, 1996, borrowings with a maturity of one year or less consisted
of the following:
<TABLE>
Weighted
Average
(Dollars in thousands) Amount Rate
------ --------
<S> <C> <C>
Securities sold under repurchase agreements $283,258 5.64%
Federal Home Loan Bank advances 554,339 5.69
Bank line of credit 14,925 6.29
Federal funds purchased 9,500 5.40
--------
$862,022 5.68
--------
--------
</TABLE>
24
<PAGE>
Stockholders' Equity
- --------------------
Stockholders' equity at March 31, 1996 was $541 million, or 7.7% of
total assets, up from $527.7 million, or 7.3% of total assets, at December 31,
1995. The increase in stockholders' equity is primarily due to net income of
$26.3 million for the first quarter of 1996 and the receipt of $2.9 million
on the exercise of stock options, partially offset by payments of $5.6 million
in dividends on TCF's common stock and a decrease of $10.8 million in net
unrealized gains on securities available for sale.
On December 19, 1995, TCF's Board of Directors (the "Board") authorized
the repurchase of up to 5% of TCF common stock, or approximately 1.8 million
shares. TCF has 97,158 shares remaining unpurchased from its initial 5% stock
repurchase program, authorized by the Board in January 1994, which the
Company expects to repurchase before initiating the new program. The
repurchased shares will be used primarily for employee benefit plans. TCF
purchased 40,000 shares of stock under these plans during the first three
months of 1996.
On April 24, 1996, TCF declared a quarterly dividend of 18.75 cents per
common share payable on May 31, 1996 to stockholders of record as of May 10,
1996.
If TCF's savings bank subsidiaries are permitted under proposed legislation
to convert to commercial banks without triggering a recapture of their tax bad
debt reserves, management has expressed an interest in converting to
commercial bank charters. Such conversions would be subject to regulatory
approval, and would impose on TCF and its wholly owned savings bank
subsidiaries new regulatory requirements of the Federal Reserve Board ("FRB")
and the Office of the Comptroller of the Currency ("OCC"). Such new
regulatory requirements or conditions to regulatory approval of applications
for authority to convert could require significant regulatory changes for
TCF's savings bank subsidiaries and could impose limitations on branching
authority or other powers currently possessed by thrift institutions but not
by commercial banks. The ultimate effect of any such restrictions or
conditions cannot be predicted at this time.
25
<PAGE>
Regulatory Capital Requirements
- -------------------------------
The following tables set forth the tangible, core and risk-based capital
levels and applicable percentages of adjusted assets, together with the excess
over the minimum capital requirements for TCF Minnesota and Great Lakes
(dollars in thousands):
<TABLE>
TCF Minnesota: At March 31, 1996 At December 31,1995
------------------------ ------------------------
Amount Percentage Amount Percentage
-------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Tangible capital $335,806 7.24% $333,254 7.03%
Tangible capital requirement 69,578 1.50 71,076 1.50
-------- ----- -------- -----
Excess $266,228 5.74% $262,178 5.53%
-------- ----- -------- -----
-------- ----- -------- -----
Core capital $336,996 7.26% $334,586 7.06%
Core capital requirement 139,191 3.00 142,193 3.00
-------- ----- -------- -----
Excess $197,805 4.26% $192,393 4.06%
-------- ----- -------- -----
-------- ----- -------- -----
Risk-based capital $372,971 12.97% $370,892 12.78%
Risk-based capital requirement 230,066 8.00 232,224 8.00
-------- ----- -------- -----
Excess $142,905 4.97% $138,668 4.78%
-------- ----- -------- -----
-------- ----- -------- -----
</TABLE>
<TABLE>
Great Lakes: At March 31, 1996 At December 31,1995
------------------------ -----------------------------
Amount Percentage Amount Percentage
-------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Tangible capital $173,523 7.25% $171,126 6.81%
Tangible capital requirement 35,901 1.50 37,667 1.50
-------- ----- -------- -----
Excess $137,622 5.75% $133,459 5.31%
-------- ----- -------- -----
-------- ----- -------- -----
Core capital $184,302 7.67% $182,268 7.23%
Core capital requirement 72,125 3.00 75,669 3.00
-------- ----- -------- -----
Excess $112,177 4.67% $106,599 4.23%
-------- ----- -------- -----
-------- ----- -------- -----
Risk-based capital $215,766 14.67% $215,132 13.63%
Risk-based capital requirement 117,701 8.00 126,293 8.00
-------- ----- -------- -----
Excess $ 98,065 6.67% $ 88,839 5.63%
-------- ----- -------- -----
-------- ----- -------- -----
</TABLE>
At March 31, 1996, TCF's savings bank subsidiaries, TCF Minnesota, Great
Lakes, TCF Illinois and TCF Wisconsin, exceeded their fully phased-in capital
requirements and believe that they would be considered "well-capitalized"
under guidelines established pursuant to the Federal Deposit Insurance
Corporation Improvement Act of 1991.
26
<PAGE>
<TABLE>
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
Supplementary Information
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
- --------------------------------------------------------------------------------------------------------------------------
At At At At At
(Dollars in thousands March 31, Dec. 31, Sept. 30, June 30, March 31,
except per-share data) 1996 1995 1995 1995 1995
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SELECTED FINANCIAL CONDITION DATA:
Total assets $7,039,282 $7,239,911 $7,331,962 $7,432,692 $7,369,061
Investments(1) 59,202 64,345 73,651 64,874 91,969
Securities available for sale 1,117,439 1,201,490 32,117 38,575 89,693
Mortgage-backed securities held to maturity - - 1,199,231 1,251,705 1,291,370
Loans 5,174,923 5,277,101 5,323,912 5,329,880 5,237,533
Deposits 5,150,023 5,191,552 5,181,765 5,249,819 5,371,461
Borrowings 1,268,887 1,441,444 1,553,693 1,589,861 1,445,327
Stockholders' equity 541,019 527,675 490,542 495,550 470,501
- --------------------------------------------------------------------------------------------------------------------------
Three Months Ended
- --------------------------------------------------------------------------------------------------------------------------
March 31, Dec. 31, Sept. 30, June 30, March 31,
1996 1995 1995 1995 1995
- --------------------------------------------------------------------------------------------------------------------------
SELECTED OPERATIONS DATA:
Interest income $148,893 $153,222 $154,036 $151,641 $148,791
Interest expense 64,439 70,451 72,549 72,349 73,143
-------- -------- -------- -------- -------
Net interest income 84,454 82,771 81,487 79,292 75,648
Provision for credit losses 2,802 2,649 2,951 2,924 6,688
-------- -------- -------- -------- --------
Net interest income after provision for credit losses 81,652 80,122 78,536 76,368 68,960
-------- -------- -------- -------- --------
Non-interest income:
Loss on sale of mortgage-backed securities - - - - (21,037)
Gain on sale of loan servicing - 3 3 1,006 523
Gain (loss) on sale of securities available for sale 85 - - 60 (250)
Gain on sale of branches 1,245 - - 1,061 42
Other non-interest income 34,499 35,620 34,164 31,981 29,600
-------- -------- -------- -------- --------
Total non-interest income 35,829 35,623 34,167 34,108 8,878
-------- -------- -------- -------- --------
Non-interest expense:
Provision for real estate losses 448 1,068 195 378 163
Amortization of goodwill and other intangibles 795 791 791 791 790
Merger-related expenses - - - - 21,733
Cancellation cost on early termination of interest-
rate exchange contracts - - - - 4,423
Other non-interest expense 74,563 74,140 71,554 70,465 70,051
-------- -------- -------- -------- --------
Total non-interest expense 75,806 75,999 72,540 71,634 97,160
-------- -------- -------- -------- --------
Income (loss) before income tax expense (benefit)
and extraordinary item 41,675 39,746 40,163 38,842 (19,322)
Income tax expense (benefit) 15,388 14,263 15,750 15,448 (7,683)
-------- -------- -------- -------- --------
Income (loss) before extraordinary item 26,287 25,483 24,413 23,394 (11,639)
Extraordinary item:
Penalties on early repayment of FHLB advances, net of
tax benefit of $578 - - - - (963)
-------- -------- -------- -------- --------
Net income (loss) 26,287 25,483 24,413 23,394 (12,602)
Dividends on preferred stock - - - - 678
-------- -------- -------- -------- --------
Net income (loss) available to common shareholders $ 26,287 $ 25,483 $ 24,413 $ 23,394 $(13,280)
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Per common share:
Income (loss) before extraordinary item $ .73 $ .71 $ .68 $ .66 $ (.36)
Extraordinary item - - - - (.03)
-------- -------- -------- -------- --------
Net income (loss) $ .73 $ .71 $ .68 $ .66 $ (.39)
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Dividends declared $ .15625 $ .15625 $ .15625 $ .15625 $ .125
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
FINANCIAL RATIOS:
Return on average assets (2) 1.48% 1.40% 1.32% 1.27% (.67)%
Return on average common equity (2) 19.67 20.21 20.44 20.48 (11.86)
Return on average realized common equity (2) 19.97 20.29 20.38 20.41 (11.83)
Average total equity to average assets 7.51 6.95 6.56 6.53 6.33
Net interest margin (2)(3) 5.06 4.86 4.71 4.58 4.31
</TABLE>
(1) Includes interest-bearing deposits with banks, federal funds sold, U.S.
Government and other marketable securities held to maturity and FHLB stock.
(2) Annualized.
(3) Net interest income divided by average interest-earning assets.
27
<PAGE>
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
Supplementary Information (Continued)
Consolidated Average Balance Sheets, Interest and Dividends
Earned or Paid, and Related Interest Yields and Rates
<TABLE>
Three Months Ended March 31,
------------------------------------------------------------------------------------
1996 1995
---------------------------------------- -------------------------------------
Interest Interest
Average Yields and Average Yields and
(Dollars in thousands) Balance Interest(1) Rates (2) Balance Interest(1) Rates (2)
----------- ---------- ---------- ----------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Assets:
Securities available
for sale $1,140,564 $ 20,351 7.14% $ 89,344 $ 1,612 7.22%
---------- -------- ---------- --------
Loans held for sale 248,298 4,574 7.37 191,529 3,966 8.28
---------- -------- ---------- --------
Mortgage-backed
securities
held to maturity - - - 1,463,259 25,846 7.07
---------- -------- ---------- --------
Loans:
Residential real
estate 2,547,847 50,640 7.95 2,681,945 51,332 7.66
Commercial real estate 955,873 21,316 8.92 985,350 21,866 8.88
Commercial business 170,097 3,730 8.77 187,611 4,493 9.58
Consumer 1,551,383 47,164 12.16 1,312,195 37,776 11.52
---------- -------- ---------- --------
Total loans(3) 5,225,200 122,850 9.40 5,167,101 115,467 8.94
---------- -------- ---------- --------
Investments:
Interest-bearing
deposits with banks 1,858 26 5.60 18,279 268 5.86
Federal funds sold 2,336 32 5.48 8,520 125 5.87
U.S. Government and
other marketable
securities held
to maturity 3,746 48 5.13 3,543 50 5.64
FHLB stock 56,250 1,012 7.20 81,099 1,457 7.19
---------- -------- ---------- --------
Total investments 64,190 1,118 6.97 111,441 1,900 6.82
---------- -------- ---------- --------
Total interest-
earning assets 6,678,252 148,893 8.92 7,022,674 148,791 8.47
-------- -------- -----
Other assets(4) 442,017 447,275
---------- ----------
Total assets $7,120,269 $7,469,949
---------- ----------
---------- ----------
Liabilities and
Stockholders' Equity:
Noninterest-bearing
deposits $ 559,309 $ 447,336
---------- ----------
Interest-bearing
deposits:
Checking 514,936 1,436 1.12 545,519 1,925 1.41
Passbook and
statement 806,723 3,682 1.83 887,919 4,840 2.18
Money market 626,874 4,756 3.03 690,914 5,996 3.47
Certificates 2,563,584 34,822 5.43 2,726,346 35,544 5.21
---------- -------- ---------- --------
Total interest-
bearing
deposits 4,512,117 44,696 3.96 4,850,698 48,305 3.98
---------- -------- ---------- --------
Borrowings:
Securities sold
under repurchase
agreements 569,308 7,906 5.55 472,509 7,340 6.21
FHLB advances 746,085 10,265 5.50 1,005,734 15,240 6.06
Subordinated debt 13,502 424 12.56 50,676 1,336 10.55
Collateralized
obligations 41,143 662 6.44 41,793 751 7.19
Other borrowings 31,756 486 6.12 12,107 171 5.65
---------- -------- ---------- --------
Total borrowings 1,401,794 19,743 5.63 1,582,819 24,838 6.28
---------- -------- ---------- --------
Total interest-
bearing
liabilities(5) 5,913,911 64,439 4.36 6,433,517 73,143 4.55
-------- ------- -------- -----
Other liabilities(4) 112,400 116,356
---------- ----------
Total liabilities 6,585,620 6,997,209
---------- ----------
Stockholders' equity:(4)
Preferred equity - 25,019
Common equity 534,649 447,721
---------- ----------
Total stockholders'
equity 534,649 472,740
---------- ----------
Total liabilities
and stockholders'
equity $7,120,269 $7,469,949
---------- ----------
---------- ----------
Net interest income $ 84,454 $ 75,648
-------- --------
-------- --------
Net interest rate spread 4.56% 3.92%
-------- -----
-------- -----
Net interest margin 5.06% 4.31%
-------- -----
-------- -----
</TABLE>
(1) Tax-exempt income was not significant and thus has not been presented on
a tax equivalent basis. Tax-exempt income of $131,000 and $127,000 was
recognized during the three months ended March 31, 1996 and 1995,
respectively.
(2) Annualized.
(3) Average balance of loans includes non-accrual loans and is presented net
of unearned income.
(4) Average balance is based upon month-end balances.
(5) Includes $14,000 and $638,000 of interest expense on interest-rate
exchange contracts
and interest-rate cap agreements for the three months ended
March 31,1996 and 1995, respectively.
28
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
- ---------------------------
From time to time, TCF is a party to legal proceedings arising out of its
general lending and operating activities. TCF is and expects to become engaged
in a number of foreclosure proceedings and other collection actions as part of
its loan collection activities. From time to time, borrowers have also brought
actions against TCF, in some cases claiming substantial amounts in damages. TCF
is also from time to time involved in litigation relating to its retail banking,
consumer credit and mortgage banking operations and related consumer financial
services, including class action litigation. Management, after review with its
legal counsel, believes that the ultimate disposition of its litigation will not
have a material effect on TCF's financial condition.
On November 2, 1993, TCF filed a complaint in the United States Court of Federal
Claims seeking monetary damages from the United States for breach of contract,
taking of property without just compensation and deprivation of property without
due process. TCF's claim is based on the government's breach of contract in
connection with TCF's acquisitions of certain savings institutions prior to the
enactment of the Financial Institutions Reform, Recovery and Enforcement Act of
1989 ("FIRREA"), which contracts allowed TCF to treat the "supervisory goodwill"
created by the acquisitions as an asset that could be counted toward regulatory
capital, and provided for other favorable regulatory accounting treatment.
Because TCF's suit has been stayed pending final appellate resolution of another
case addressing the government's liability for breach of supervisory goodwill
contracts (the Winstar case, discussed below) the United States has not yet
answered TCF's complaint. TCF's complaint involves approximately $80.3 million
in supervisory goodwill.
In August 1995, Great Lakes filed with the United States Court of Federal Claims
a complaint seeking monetary damages from the United States for breach of
contract, taking of property without just compensation and deprivation of
property without due process. Great Lakes' claim is based on the government's
breach of contract in connection with Great Lakes' acquisitions of certain
savings institutions prior to the enactment of FIRREA in 1989, which contracts
allowed Great Lakes to treat the "supervisory goodwill" created by the
acquisitions as an asset that could be counted toward regulatory capital, and
provided for other favorable regulatory accounting treatment. The United States
has not yet answered Great Lakes' complaint, and the Court has entered a stay of
proceedings pending final appellate resolution of the Winstar case, discussed
below. Great Lakes' complaint involves approximately $87.3 million in
supervisory goodwill.
On August 30, 1995, the United States Court of Appeals for the Federal
Circuit (the court of appeals which hears appeals from decisions of the Court
of Federal Claims), sitting en banc, issued a decision affirming the Court of
Federal Claims' liability determinations in three other "supervisory
goodwill" cases, consolidated for review under the title Winstar Corp. v.
United States, 64 F.3d 1531 (Fed. Cir. 1995). In rejecting the United
States' consolidated appeal from the Court of Federal Claims' decisions, the
Federal Circuit held in Winstar that the United States had breached contracts
it had entered into with the plaintiffs which provided for the treatment of
supervisory goodwill, created through the plaintiffs' acquisitions of failed
or failing savings institutions, as an asset that could be counted toward
regulatory capital. The United States sought and was granted review by the
United States Supreme Court of the Federal Circuit decision in Winstar. The
Supreme Court is expected to issue a ruling in Winstar in 1996.
The contracts involved in these three cases are not the same, and it is
possible the result in these cases could depend upon the contract language in
each case.
There are a variety of contracts and contract provisions in the TCF and Great
Lakes transactions. There can be no assurance that the U.S. Supreme Court
will uphold the
29
<PAGE>
liability determination in Winstar or, if upheld whether the ruling will apply
to all three cases included in the Supreme Court review or, even if it does
uphold Winstar, that a similar result would be obtained in the actions filed
by TCF and Great Lakes. There also can be no assurance that the government
will be determined liable in connection with the loss of supervisory goodwill
by either TCF or Great Lakes or, even if a determination favorable to TCF or
Great Lakes is made on the issue of the government's liability, that a
measure of damages will be employed that will permit any recovery on TCF's or
Great Lakes' claim.
Item 2. Changes in Securities.
- -------------------------------
None.
Item 3. Defaults Upon Senior Securities.
- -----------------------------------------
None.
Item 4. Submission of Matters to a Vote of Security Holders.
- -------------------------------------------------------------
On April 24, 1996, the Annual Meeting of the shareholders of TCF was held to
obtain the approval of shareholders of record as of March 8, 1996 in connection
with the four matters indicated below. Following is a brief description of each
matter voted on at the meeting, and the number of votes cast for, against or
withheld, as well as the number of abstentions and broker nonvotes, as to each
such matter:
<TABLE>
Vote
---------------------------------------
Against or Broker
For Withheld Abstain Nonvote
--------- ---------- --------- -------
<S> <C> <C> <C> <C>
1. Election of Directors:
William A. Cooper 27,584,520 441,456 N/A N/A
Thomas A. Cusick 27,610,651 415,325 N/A N/A
Rudy Boschwitz 27,690,632 335,344 N/A N/A
Thomas J. McGough 27,801,704 224,272 N/A N/A
Ronald A. Ward 27,718,716 307,260 N/A N/A
2. Ratification of KPMG Peat
Marwick LLP as independent
public accountants for 1996. 27,869,569 77,195 79,212 0
3. Approval of a Directors Stock
Grant Program. 26,442,342 1,354,294 229,339 1
4. Approval of a Performance-Based
Incentive Policy. 26,744,999 1,025,479 255,498 0
</TABLE>
Item 5. Other Information.
- ---------------------------
None.
Item 6. Exhibits and Reports on Form 8-K.
- ------------------------------------------
(a) Exhibits.
See Index to Exhibits on page 32 of this report.
(b) Reports on Form 8-K.
A Current Report on Form 8-K, dated January 5, 1996, was filed in
connection with TCF's announcement that it had authorized the repurchase
of up to 5% of the Company's outstanding shares through open market or
privately negotiated transactions.
30
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TCF FINANCIAL CORPORATION
/s/ Ronald J. Palmer
-------------------------------------------
Ronald J. Palmer, Executive Vice President,
Chief Financial Officer and Treasurer
(Principal Financial Officer)
/s/ Mark R. Lund
-------------------------------------------
Mark R. Lund, Senior Vice President,
Assistant Treasurer and Controller
(Principal Accounting Officer)
Dated: May 14, 1996
31
<PAGE>
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
INDEX TO EXHIBITS
FOR FORM 10-Q
<TABLE>
Exhibit Sequentially
Number Description Numbered Page
- --------- ----------------------------------- -------------
<C> <S> <C>
4(a) Copies of instruments with respect N/A
to long-term debt will be furnished
to the Securities and Exchange
Commission upon request.
11 Computation of Earnings (Loss) Per
Common Share 33
27 Financial Data Schedule 34
</TABLE>
32
<PAGE>
Exhibit 11 - Computation of Earnings (Loss) Per Common Share
TCF FINANCIAL CORPORATION AND SUBSIDIARIES
Computation of Earnings (Loss) Per Common Share
(Dollars in thousands, except per-share data)
(Unaudited)
<TABLE>
Computation of Earnings (Loss) Per Common Share Three Months Ended
for Statements of Operations: March 31,
- ------------------------------------------------ ---------------------------
1996 1995
---- ----
<S> <C> <C>
Income (loss) before extraordinary item $ 26,287 $ (11,639)
Less: Dividends on preferred stock - 678
----------- -----------
Income (loss) applicable to common stock before
extraordinary item 26,287 (12,317)
Extraordinary item - (963)
----------- -----------
Income (loss) applicable to common stock $ 26,287 $ (13,280)
----------- -----------
----------- -----------
Weighted average number of common and common
equivalent shares outstanding:
Weighted average common shares outstanding 35,777,159 34,345,982
Dilutive effect of stock option plans and
common stock warrants after application
of treasury stock method 209,057 - (1)
---------- ----------
35,986,216 34,345,982
----------- -----------
----------- -----------
Earnings (loss) per common share:
Income (loss) before extraordinary item $ .73 $ (.36)
Extraordinary item - (.03)
----------- -----------
Net income (loss) $ .73 $ (.39)
----------- -----------
----------- -----------
Computation of Fully Diluted Earnings (Loss)
Per Common Share (2):
Income (loss) before extraordinary item $ 26,287 $ (11,639)
Add: Interest expense on 7 1/4% convertible
subordinated debentures 83 108
Less: Dividends on preferred stock - 678
----------- -----------
Income (loss) applicable to common stock before
extraordinary item 26,370 (12,209)
Extraordinary item - (963)
----------- -----------
Income (loss) applicable to common stock $ 26,370 $ (13,172)
----------- -----------
----------- -----------
Weighted average number of common and common
equivalent shares outstanding:
Weighted average common shares outstanding 35,777,159 34,345,982
Dilutive effect of stock option plans and
common stock warrants after application
of treasury stock method 213,801 841,048(3)
Dilutive effect from assumed conversion of
7 1/4% convertible subordinated debentures 425,606 582,458(3)
----------- -----------
36,416,566 35,769,488
----------- -----------
----------- -----------
Earnings (loss) per common share:
Income (loss) before extraordinary item $ .72 $ (.34)
Extraordinary item - (.03)
----------- -----------
Net income (loss) $ .72 $ (.37)
----------- -----------
----------- -----------
</TABLE>
(1) Effect is anti-dilutive and is therefore excluded from the calculation.
(2) This calculation is submitted in accordance with Regulation S-K Item
601(b)(11) although not required by footnote 2 to paragraph 14 of APB
Opinion No. 15 because it results in dilution of less than 3%.
(3) This calculation is submitted in accordance with Regulation S-K Item
601(b)(11) although it is contrary to paragraph 40 of APB Opinion No. 15
because it produces an anti-dilutive result.
33
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
1ST QUARTER 1996 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 218,184
<INT-BEARING-DEPOSITS> 451
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,117,439
<INVESTMENTS-CARRYING> 3,789
<INVESTMENTS-MARKET> 3,789
<LOANS> 5,174,923
<ALLOWANCE> 66,779
<TOTAL-ASSETS> 7,039,282
<DEPOSITS> 5,150,023
<SHORT-TERM> 862,022
<LIABILITIES-OTHER> 79,353
<LONG-TERM> 406,865
0
0
<COMMON> 359
<OTHER-SE> 540,660
<TOTAL-LIABILITIES-AND-EQUITY> 7,039,282
<INTEREST-LOAN> 122,850
<INTEREST-INVEST> 21,469
<INTEREST-OTHER> 4,574
<INTEREST-TOTAL> 148,893
<INTEREST-DEPOSIT> 44,696
<INTEREST-EXPENSE> 64,439
<INTEREST-INCOME-NET> 84,454
<LOAN-LOSSES> 3,002
<SECURITIES-GAINS> 85
<EXPENSE-OTHER> 75,806
<INCOME-PRETAX> 41,675
<INCOME-PRE-EXTRAORDINARY> 26,287
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 26,287
<EPS-PRIMARY> .73
<EPS-DILUTED> .72
<YIELD-ACTUAL> 5.06
<LOANS-NON> 39,144
<LOANS-PAST> 369
<LOANS-TROUBLED> 1,603
<LOANS-PROBLEM> 48,101
<ALLOWANCE-OPEN> 65,695
<CHARGE-OFFS> 3,586
<RECOVERIES> 1,668
<ALLOWANCE-CLOSE> 66,779
<ALLOWANCE-DOMESTIC> 49,025
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 17,754
</TABLE>
